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Mercantile Laws-I

Notes or canceled. An agreement can be treated as a valid contract when the consent of the parties are
free and not under any undue influence, fear or pressure etc. The consent of the parties must be

genuine and free consent.
Capacity of parties to contract: Parties entering into an agreement must be competent and
capable of entering into a contract. If “A” agrees to sell a Government property to B and B agrees
to buy that property, it could not treated as a valid agreement as A is not authorized or owner of
the property. If any of the party is not competent or capable of entering into the agreement, that
agreement cannot be treated as a valid contract.
According to Section 11 of the Act which says that every person is competent to contract who is
of the age of majority according to the law to which he is subject and who is of sound mind, and

is not disqualified from contracting by any law to which he is subject. So it is clear that the party
must be of sound mind and of age to enter into a valid agreement which can be treated as a valid
contract.
Certainty of meaning: Wording of the agreement must be clear and not uncertain or vague.
Suppose John agrees to sell 500 tones of oil to Mathew. But, what kind of oil is not mentioned
clearly. So on the ground of uncertainty, this agreement stands void. If the meaning of the
agreement can be made certain by the circumstances, it could be treated as a valid contract. For
example, if John and Mathew are sole trader of coconut oil, the meaning of the agreement can
be made certain by the circumstance and in that case, the agreement can be treated as a valid
contract. According to Section 29 of the Contract Act says that Agreements, the meaning of which
is not certain or capable of being made certain, are void.
Possibility of performance: As per section 56, if the act is impossible of performance, physically or
legally, the agreement cannot be enforced by law. There must be possibility of performance of the
agreement. Impossible agreements like one claims to run at a speed of 1000km/hour or Jump to
a height of 100feet etc. would not create a valid agreement. All such acts which are impossible of
performance would not create a valid contract and cannot treated as a valid contract. In essence,
there must be possibility of performance must be there to create a valid contract.
Lawful consideration: An agreement must be supported by a consideration of something in
return. That is, the agreement must be supported by some type of service or goods in return of
money or goods. However, it is not necessary the price should be always in terms of money. It
could be a service or another goods.

Example: Suppose X agrees to buy books from Y for $50. Here the consideration of
X is books and the consideration of Y is $50. It can be a promise to act (doing something) or
forbearance (not doing something). The consideration may be present, future or can be past. But
the consideration must be real. For example If John agrees to sell his car of $ 50000 to Peter for
$20000. This is a valid contract if John agrees to sell his car not under any infl uence or force. It
can be valid only if the consideration of John is free. An agreement is valid only when the acts are
legal. Illegal works like killing another for money, or immoral works or illegal acts are cannot be
treated as a valid agreement. So, illegal works will not come under the contract act.
Legal formalities: The contract act does not insist that the agreement must be in writing, it could
be oral. But, in some cases the laws strictly insist that the agreement must be in writing like
agreement to sell immovable property must be in writing and should be registered under the

Transfer of Property Act, 1882. These agreement are valid only when they fulfill the formalities
like writing, registration, signing by the both the parties are completed. If these legal formalities
are not completed, it cannot be treated as a valid contract.
These elements should be present in a contract to make it a valid contract. If any one of them is
missing we cannot treat that agreement as a valid contract.

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